Saturday, July 21, 2012

The price of Treasury bonds is supported by the Federal Reserve’s
large purchases. The Federal Reserve’s purchases are often misread as
demand arising from a “flight to quality” due to concern about the EU
sovereign debt problem and possible failure of the euro.

Another rationale used to explain the demand for Treasuries despite
their negative yield is the “flight to safety.” A 2% yield on a Treasury
bond is less of a negative interest rate than the yield of a few basis
points on a bank CD, and the US government, unlike banks, can use its
central bank to print the money to pay off its debts.

It is possible that some investors purchase Treasuries for these
reasons. However, the “safety” and “flight to quality” explanations
could not exist if interest rates were rising or were expected to rise.
The Federal Reserve prevents the rise in interest rates and decline in
bond prices, which normally result from continually issuing new debt in
enormous quantities at negative interest rates, by announcing that it
has a low interest rate policy and will purchase bonds to keep bond
prices high. Without this Fed policy, there could be no flight to safety
or quality.

It is the prospect of ever lower interest rates that causes investors
to purchase bonds that do not pay a real rate of interest. Bond
purchasers make up for the negative interest rate by the rise in price
in the bonds caused by the next round of low interest rates. As the
Federal Reserve and the banks drive down the interest rate, the issued
bonds rise in value, and their purchasers enjoy capital gains.

As the Federal Reserve and the Bank of England are themselves fixing
interest rates at historic lows in order to mask the insolvency of their
respective banking systems, they naturally do not object that the banks
themselves contribute to the success of this policy by fixing the LIbor
rate and by selling massive amounts of interest rate swaps, a way of
shorting interest rates and driving them down or preventing them from
rising.

The lower is Libor, the higher is the price or evaluations of
floating-rate debt instruments, such as CDOs, and thus the stronger the
banks’ balance sheets appear.

Does this mean that the US and UK financial systems can only be kept
afloat by fraud that harms purchasers of interest rate swaps, which
include municipalities advised by sellers of interest rate swaps, and
those with saving accounts?

The answer is yes, but the Libor scandal is only a small part of the
interest rate rigging scandal. The Federal Reserve itself has been
rigging interest rates. How else could debt issued in profusion be
bearing negative interest rates?

As villainous as they might be, Barclays bank chief executive Bob
Diamond, Jamie Dimon of JP Morgan, and Lloyd Blankfein of Goldman Sachs
are not the main villains. The main villains are former Treasury
Secretary and Goldman Sachs chairman Robert Rubin, who pushed Congress
for the repeal of the Glass-Steagall Act, and the sponsors of the
Gramm-Leach-Bliley bill, which repealed the Glass-Steagall Act.
Glass-Steagall was put in place in 1933 in order to prevent the kind of
financial excesses that produced the current ongoing financial crisis.

President Clinton’s Treasury Secretary, Robert Rubin, presented the
removal of all constraints on financial chicanery as “financial
modernization.” Taking restraints off of banks was part of the hubristic
response to “the end of history.” Capitalism had won the struggle with
socialism and communism. Vindicated capitalism no longer needed its
concessions to social welfare and regulation that capitalism used in
order to compete with socialism.

The constraints on capitalism could now be thrown off, because
markets were self-regulating as Federal Reserve chairman Alan Greenspan,
among many, declared. It was financial deregulation–the repeal of
Glass-Steagall, the removal of limits on debt leverage, the absence of
regulation of OTC derivatives, the removal of limits on speculative
positions in future markets–that caused the ongoing financial crisis. No
doubt but that JP Morgan, Goldman Sachs and others were after maximum
profits by hook or crook, but their opportunity came from the
neoconservative triumphalism of “democratic capitalism’s” historical
victory over alternative socio-politico-economic systems.

The ongoing crisis cannot be addressed without restoring the laws and
regulations that were repealed and discarded. But putting Humpty-Dumpty
back together again is an enormous task full of its own perils.

The financial concentration that deregulation fostered has left us
with broken financial institutions that are too big to fail. To
understand the fullness of the problem, consider the law suits that are
expected to be filed against the banks that fixed the Libor rate by
those who were harmed by the fraud. Some are saying that as the fraud
was known by the central banks and not reported, that the Federal
Reserve and the Bank of England should be indicted for their
participation in the fraud.

What follows is not an apology for fraud. It merely describes consequences of holding those responsible accountable.

Imagine the Federal reserve called before Congress or the Department
of Justice to answer why it did not report on the fraud perpetrated by
private banks, fraud that was supporting the Federal Reserve’s own
rigging of interest rates (and the same in the UK.)

The Federal reserve will reply: “So, you want us to let interest
rates go up? Are you prepared to come up with the money to bail out the
FDIC-insured depositors of JPMorganChase, Bank of America, Citibank,
Wells Fargo, etc.? Are you prepared for US Treasury prices to collapse,
wiping out bond funds and the remaining wealth in the US and driving up
interest rates, making the interest rate on new federal debt necessary
to finance the huge budget deficits impossible to pay, and finishing off
what is left of the real estate market? Are you prepared to take
responsibility, you who deregulated the financial system, for this
economic armageddon?

Obviously, the politicians will say NO, continue with the fraud. The
harm to people from collapse far exceeds the harm in lost interest from
fixing the low interest rates in order to forestall collapse. The
Federal Reserve will say that we are doing our best to create profits
for the banks that will permit us eventually to unwind the fraud and
return to normal. Congress will see no better alternative to this.

But the question remains: How long can the regime of negative
interest rates continue while debt explodes upward? Currently, everyone
in the US who counts and most who don’t have an interest in holding off
armageddon. No one wants to tip over the boat. If the banks are sued for
damages and lack the money to pay, the Federal Reserve can create the
money for the banks to pay.

If the collapse of the system does not result from scandals, it will
come from outside. The dollar is the world reserve currency. This means
that the dollar’s exchange value is boosted, despite the dismal economic
outlook in the US, by the fact that, as the currency for settling
international accounts, there is international demand for the dollar.
Country A settles its trade deficit with country B in dollars; country B
settles its account with country C in dollars; and so on throughout the
countries of the world.

For whatever the reason–perhaps to curtail their accumulation of
suspect dollars or to bring Washington’s power to an end–the BRICS
countries, Brazil, Russia, India, China, and South Africa, are agreeing
to settle their trade between themselves in their own currencies, thus
abandoning the use of the dollar.

According to reports, China and Japan have reached agreement to settle their trade between themselves in their own currencies.

The moves away from the dollar as the currency of international
transactions means that the dollar’s exchange value will fall as the
demand for dollars falls. Whereas the Federal Reserve can create dollars
with which to purchase the Treasury’s debt, thus preventing a fall in
bond prices, the Federal Reserve cannot prop up the dollar’s exchange
value by creating more dollars with which to purchase dollars. Dollars
would have to be taken off the foreign exchange market by purchasing
them with other currencies, but in order to have these currencies the US
would have to be running a trade surplus, not a long-term trade
deficit.

In the short-run, the Federal Reserve could arrange currency swap
agreements in which foreign central banks swap their currencies for
dollars in order to supply the Federal Reserve with currencies with
which to soak up dollars. However, only a limited number of swaps could
be negotiated before foreign central banks understood that the dollar’s
fall in value was not a temporary event that could be propped up with
currency swaps.

As the value of the dollar will fall as countries move away from its
use as reserve currency, the values of dollar-denominated assets also
will fall. The Federal Reserve, even with full cooperation from the
banking system employing every fraud technique known, cannot prevent
interest rates from rising on debt instruments denominated in a currency
whose value is falling.
Think about it this way. A person, fund, or institution owns bonds or
any debt instruments carrying a negative rate of interest, but
continues to hold the instruments because interest rates, despite the
increase in debt, are creeping down, raising bond prices and producing
capital gains in the bonds. What happens when the exchange value of the
currency in which the debt instruments are denominated falls? Can the
price of the bond stay high even though the value of the currency in
which the bond is denominated falls?

The drop in the exchange value of the currency hits the bond price in
a second way. The price of imports rise, and this pushes up prices. The
inflation measures will show higher inflation. How long will people
hold debt instruments paying negative interest rates as inflation rises?
Perhaps there are historical cases in which bond prices continue to
rise indefinitely (or even hold firm) as inflation rises, but I have
never heard of them.

As the Federal Reserve can create money, theoretically the Federal
Reserve’s prop-up schemes could continue until the Federal Reserve owns
all dollar-denominated financial assets. To cover the holes in its own
balance sheet, the Federal Reserve could just print more money.

Some suspect that the Federal Reserve, in order to forestall a
declining dollar and thus declining prices of dollar-denominated
financial instruments, is behind the sales of naked shorts every time
demand for physical bullion drives up the price of gold and silver. The
short sales–paper sales–cancel the impact on price of the increased
demand for bullion.

Some also believe that they see the Federal Reserve’s hand in the
stock market. One day stocks fall 200 points. The next day stocks rise
200 points. This up and down pattern has been ongoing for a long time.
One possible explanation is that as wary investors sell their equity
holdings, the Federal Reserve, or the “plunge protection team,” steps in
and buys.

Just as the “terrorist threat” was used to destroy the laws that
protect US civil liberty, the financial crisis has resulted in the
Federal Reserve moving far outside its charter and normal operating
behavior.

To sum up, what has happened is that irresponsible and thoughtless–in
fact, ideological–deregulation of the financial sector has caused a
financial crisis that can only be managed by fraud. Civil damages might
be paid, but to halt the fraud itself would mean the collapse of the
financial system. Those in charge of the system would prefer the
collapse to come from outside, such as from a collapse in the value of
the dollar that could be blamed on foreigners, because an outside cause
gives them something to blame other than themselves.

The “GOP right wing is serious about disabling government.” This
is the chilling byline from The Hill’s Congress Blog, July 19, 2012 by
Former Rep. Sherwood Boehlert (R-NY) referencing: H.R. 4078- Red Tape
Reduction and Small Business Job Creation Act.

H.R. 4078 will be considered by the House next week, and according to
former Rep. Boehlert, “If one wants to fully appreciate the
stranglehold the right wing has on the Republican Congressional agenda,
and its attendant dangers, one need look no further than the bill the
House plans to consider… which would shut down the entire regulatory
system.”

The message behind this Republican-sponsored bill to the
Democrats is: Put this in your pipe and smoke it you wild-eyed,
chicken-livered, pantywaisted, pinko, lefty liberals. And, just to
reflect, Ann Coulter is the one who famously said, “ The left is out to
destroy the country.”

H. R. 4078 places a moratorium on the issuance of all new major
governmental regulations, until unemployment averages 6%, or less, for
an entire quarter. This bill is so cleverly worded that it essentially
shuts down the future of government, including the prospect that, if a
newly elected President Romney wants to impose new limitations on how
government funds are expended, so sorry. He’ll be blocked. Therefore,
it is clear the right-wingers do not even trust their own kind, and what
an irony considering it is reasonably probable the billionaire
right-wingers will purchase the presidency but will not know what to do with it!

The media has largely ignored H.R. 4078 because the whole affaire
surrounding the bill seems so far-fetched and ignorant they figure there
is no way that Congress could be stupid enough to literally tie the
hands of the government. For example, what if a brilliant bill is
initiated to help prevent another financial meltdown? Nope! No can do
because the H.R. 4078 prohibits issuance of new standards and safeguards
and any action that might lead to the issuance of new standards and
safeguards.

This bunch of Republicans now running our Congress constitute a throw
back to the acumen of an earlier era when the nation’s top ranking
leadership was characterized by then-Vice President Dan Quayle, and one
of his famous statements: “I was recently on a tour of Latin America,
and the only regret I have was that I didn’t study Latin harder in
school so I could converse with those people.” This festering Quaylitis
virus, similar to the Black Plague of old, re-emerges every so often,
and it bewilders every politician it touches. The recent outbreak
appears to have already infected a large component of the Republicans on
the Hill.

In combination with Tea Partiers and the other heavy-duty right-wing
extremists, the virus is an unbelievably toxic cocktail, something the
country has never witnessed before. It is not a stretch of one’s
imagination to say the country is now in the hands of a revitalized
Know-Nothing Party (1850s), a bunch of xenophobes who form secretive
groups to influence national policy by hiding within the dark enclaves
of Citizens United, spewing out falsehoods so flamboyantly outrageous as
to confuse a credulous public that falls head over heels for the faux
credibility of TV’s electronic signal warfare, capturing the minds and
the voters of the country by instilling fear of the present and despair for the future. This is the Know-Nothing way!

These Know-Nothings amazingly link ‘employment’ and ‘regulations’ as
if a freeze on regulations will lift employment; otherwise, why set
criteria of 6% unemployment as the hallmark for success of the bill?
This is a patently false claim that has been roundly debunked by: the
Economic Policy Institute, American Sustainable Business Council, the
Bureau of Labor Statistics, and, American Association of University
Professors.

Furthermore, according to the Financial Crisis Inquiry
Commission, “Widespread failures in financial regulation and supervision
proved devastating to the stability of the nation’s financial markets,”
leading to the Great Financial Meltdown of 2007-08. H.R. 4078 throws
out the window any possibility of window dressing to address the
systemic cancerous outgrowth of a failed regulatory environment that
nearly shattered the country.

And, unbeknownst to the Know Nothings, their bill will step on the
toes of their colleagues because the proposed act will hit the NRA and
Dick Cheney’s hunting escapades right between the eyes. Every year the
Fish and Wildlife Service analyzes data to determine appropriate bird
hunting season for each state. The Migratory Bird Hunting study tells
hunters which birds they can hunt, when seasons begin and end, where
hunting is permitted, kill limits, etc. The Regulatory Freeze Act, H.R.
4078 will block this annual regulatory action. Where, when, and what
will they hunt? This could lead to nationwide pandemonium with
orange-suited hunters blasting away at anything, and everything, that
flies!

And, even more alarming yet, the bill endangers the health of the
nation at large because, every five years, Congress reauthorizes the
Prescription Drug and User Fee Act, establishing the framework for FDA
approval of new medicines and new medical devices. Reauthorization of
this act is scheduled for 2012.

The bill sponsor is Tim Griffin (R-AR), and there are 20 Republican
co-sponsors with no Democrats on board. Griffin is the one who
infamously resigned from his position with George W. Bush’s re-election
campaign after his Swift Boat (2004) involvement became public.

Previously Griffin was a legal advisor for the Bush-Cheney 2000 Florida
Recount Team, and appearing in a BBC documentary, “Digging the Dirt,” he
stated, “We think of ourselves as the creators of the ammunition in a
war. We make the bullets.” During Griffin’s 2010 campaign for the House,
Citizens for Responsibility and Ethics in Washington named him as one
of the “Crooked Candidates of 2010.” He has served in the House since
January 3, 2011.

Griffin believes new regulations and/or changes in regulations hurt
the economy, and he opines a moratorium on regulations will increase
employment… What? However, it is worth noting his bill does have
limited exemptions to respond to health or safety threats to the country
and for national security.

Nevertheless, the Congressional Budge Office says the bill could have
a big, and hard to predict, effect on revenue, spending and
implementation of legislation. As currently written, the bill will
prevent annual updates of Medicare service payment levels, and it will
delay implementation of the Patient Protection and Affordable Care Act,
2010, informally referred to as Obamacare, including provisions for
creation of a new system of health insurance.

Additionally, the bill
appears to eradicate numerous pending energy-related bills like a New
Refinery Standards act and a new EPA Fracking Rule as well as new energy
standards for housing and industrial coolers.

You can bet your bottom dollar this bill is destined to become a very
expensive affair, but whether it passes, or not, that is altogether
another story for another time.

I think a lie with a purpose is wan iv the’ worst kind an’ the mos’ profitable.
– Finley Peter Dunne On Lying

There was something refreshing about Bernie Madoff. He robbed Peters
to pay Pauls and it worked well until there were more Pauls than
Peters. It was straightforward and simple. And that is the difference
between him and Barclays, JPMorgan Chase, Goldman Sachs and the many
other large financial institutions that cheat those with whom they deal.
Bernie was not subtle. No Congressional hearings or hearings in the
British parliament were required in order to understand what happened.

A man named Diamond runs Barclays and a man named Dimon runs JPMorgan
Chase. The similarity in names is not all they have in common. Each man
has presided over an institution that has dealt less than fairly, in
the case of JPMorgan, with its customers, and in the case of Barclays,
with consumers everywhere. JPMorgan did it by ripping off its customers
and Barclays did it by manipulating the LIBOR rate. (It is now reported that four other major European banks are being investigated for similar behavior.)

Barclays manipulated the LIBOR rate from 2005-2009. The LIBOR rate
is the rate banks charge each other for inter-bank loans.

According
to Ezra Klein
from 2005 to 2007 Barclay’s placed bets that LIBOR rates would
increase. Barclays would then report artificially high rates to the
authority gathering the rates from the banks to establish the LIBOR rate
thus improving the chance that the LIBOR rate would go up and the bets
the firm made would pay off. Investors on the other side of the bet
were losers and borrowers whose interest rates on loans were set to
LIBOR were paying artificially high rates. Beginning in 2008 when the
solvency of financial institutions was being questioned, instead of
reporting artificially high rates Barclays reported artificially low
rates leading regulators to believe the bank was healthier than it was
thus reducing the likelihood that its stability would be questioned.
(When rates were low consumers benefitted since mortgages, credit card
loans and other financial transactions are tied to those rates.) When
the LIBOR manipulation came to light, Mr. Diamond sent a memo to staff
saying he was “disappointed because many of these things happened on my
watch.”

On July 2 he said that although disappointed he would not
resign his position. On July 3 he resigned. Chancellor of the
Exchequer, George Osborne, said the episode was “evidence of systematic
greed at the expense of financial integrity and stability” and said the
bank was in flagrant breach of its duty “to observe proper standards of
market conduct. . . .” Any reader who tries to understand my attempt to
describe the LIBOR manipulation and its effects will certainly
appreciate the simplicity of Mr. Madoff’s scheme.

JPMorgan Chase is one of the largest mutual fund managers in the
country. In addition to selling its own funds, it is in a position to
sell other funds to its customers. According to a story in the New York Times
its sales personnel were encouraged to sell customers its proprietary
funds rather than those of competitors, even when the competitors’ funds
had historically performed better than the bank’s funds. One former
employee said he was “selling JPMorgan funds that often had weak
performance records, and I was doing it for no other reason than to
enrich the firm. I couldn’t call myself objective.” Some people might
have been surprised at those disclosures thinking that the bank would
have reformed its ways after 2011. That was the year the bank was ordered
to pay $373 million to American Century Investments because it failed
to honor its agreement with American Century to promote American Century
products when it acquired that firm’s retirement-plan services unit.
The arbitrators who heard the case said JPMorgan employees were rewarded
for pushing JPMorgan’s own products.

Goldman Sachs is another venerable institution that benefits itself
at the expense of its customers. In March 2012 Chancellor Leo Strine of
the Court of Chancery in Delaware issued a lengthy ruling in the case
of in re El Paso Shareholder Litigation. He criticized
Goldman for its blatant conflict of interest when trying to acquire El
Paso Corp describing it as “disturbing behavior.” Jonathan Weil who
writes for Bloomberg, made the observation about Goldman’s conduct in
that transaction that Goldman had “every incentive to maximize its own
investment and fleece El Paso shareholders.”

At roughly the same time Chancellor Strine’s opinion was making the
news a former Goldman employee published an op-ed piece in the New York Times
in which he said, among other things, that the firm’s clients were
“sidelined in the way the firm operates and thinks about making money. .
. . It is purely about how we can make the most possible money off them
{clients.}.”

Readers should understand that the foregoing does not purport to be a
complete list of banks that have devised schemes to enrich themselves
at the expense of their customers. It is only a small sampling. As I
said at the outset, the nice thing about Bernie was how straightforward
his malfeasance was. Everyone can understand it. The banks are no
more honest than he-just more artful.

Friday, July 20, 2012

Like many of their professors, students at the Sorbonne had become
used to going to buy their ink cartridges from a small shop on a nearby
street. With no manufacturer affiliations, it carried shelves full of
‘generic’ cartridges that worked with printers from big name brands like
Epson, Canon, HP and Brother. But that small shop soon faced a very big
problem: some new printers only recognise ‘proprietary’ consumables
that they can detect by matching their hardware signature against a
signature in a chip on the cartridge. Anybody hoping to get round that
by using a syringe to top up their existing cartridge with new ink was
soon caught out because the chips can also track ink levels. But try
seeing things from the manufacturers’ point of view: print cartridge
sales can represent up to 90% of their turnover,
so it’s not hard to see why they want to prevent consumers from going
elsewhere. This process of trapping consumers in an endless cycle of
buying more by supplying products that soon become unusable or beyond
repair has taken on the almost cult name of ‘planned obsolescence.’

This rather abstract term hides a whole range of manufacturing and
marketing techniques that all share a single aim: encouraging consumers
to buy more to keep factories busy and products flying off the shelves.
The easiest way to achieve this is to reduce a product’s life cycle by
employing different techniques that lead to a constant squeeze on labour
costs and a wasteful use of natural resources, with little concern for
the current shortages in raw materials, although the practice has
managed to hold back the price of rare metals and copper.From disposable light bulbs to the iPad 2

Just after the First World War, the future of filament-based electric
bulbs looked very bright when a commercial agreement between the Allies
and Germany was signed. Before the ink was even dry on the Treaty of
Versailles, Dutch firm Philips, the American General Electric and German
Osram joined forces with other European and Japanese companies in an
agreement to limit the lifespan of their light bulbs and fix prices as
part of the Phoebus cartel.

“In a word, people generally, in a
frightened and hysterical mood, are using everything that they own
longer than was their custom before the depression. In the earlier
period of prosperity, the American people did not wait until the last
possible bit of use had been extracted from every commodity. They
replaced old articles with new for reasons of fashion and
up-to-dateness. They gave up old homes and old automobiles long before
they were worn out, merely because they were obsolete.”

For industrialists, the idea represented something of a commercial
Holy Grail, a way to create more demand in a market that was already
saturated. How could they sell more fridges, cars and shoes to customers
that already had what they needed? They had three main solutions:

technical: built weaker, less durable products that are impossible to repair;

design: artificially age older products by making them seem old-fashioned and out-of date;

legal: lobby for new legal requirements and standards that mean customers have to buy a new product to stay within the law.

Not every industry uses all three methods. Built-in technical planned
obsolescence is more common with white goods (fridges, ovens and so
on), but brand new designs and increasingly short turnaround times in
between different generations of the same product is a something of a
speciality for consumer electronics manufacturers. Apple has managed to
achieve remarkable success by using both methods at the same time: its
Macs are entirely proprietary and very difficult for the user to modify;
if you try taking one apart yourself, you’ll find you’re no longer
covered by the guarantee.

They form a closed system, meaning it’s hard to switch the hard drive
or graphics card, or tweak the performance in any way, because the
manufacturer is the only one that supplies the parts. Finally, software
and hardware updates come along incredibly frequently. The
manufacturer’s ‘addicted’ fans are encouraged by incessant publicity to
upgrade to the latest expensive mobile phone, laptop or MP3
player—despite the fact that Apple’s products are part of the same
low-cost supply chain with poorly-paid workers and cheap raw materials
as everybody else’s. The firm’s main sub-contractor, Foxconn, uses parts of its factories to work on products for Apple’s rivals, including HP, Sony, Intel and Dell.Writing planned obsolescence into law: the ‘lift cartel’

A great example of this ‘forced consumption’ is the humble lift. The
four main lift cabin manufacturers, Thyssenkrupp, Koné, Otis and
Schindler, appealed to the French standards-setting body, AFNOR, after
fatal accidents in Amiens and Strasbourg. They expressed their concerns
to the minister, Gilles de Robien, who tabled a law that will lead to a
huge replacement programme to ensure the country’s lifts are safe to
run between 2013 and 2018. This safety-critical upgrade is set to cost
between four and eight billion euros.

But according to a report by Parisian councillor Ian Brossat published last year by Marianne2,
the programme is very unlikely to be of much use to the general
public. It’s not the lift cabins themselves that cause problems, but
poor maintenance carried out by overworked technicians. And the two
accidents that led to the de Robien law were both triggered by
insufficient maintenance …

A trend in favour of consumption

Guarantees and warranties, which have been
getting shorter and shorter since the start of the last decade,
represent the final chapter in this story. Writing in the Wall
Street Journal, journalist Jane Spencer observed
that “in the past year Dell Computer has slashed warranty periods from
three years to one.” At the same time, Apple’s earliest iPods were
amongst the first products to offer users a mere 90 days of protection.

That’s just three months. The rapid
reduction in labour costs in Asia, South Africa and former Eastern Bloc
countries has meant that even pricey gadgets are now seen as disposable.
Repairing is left to geeks, eco-activists or anybody nostalgic enough
to still have an old soldering iron.

Putting these various ways of implementing
planned obsolescence to one side though, it’s propaganda—in the original
sense of the word, being able to convince the masses—that has had the
biggest impact. It has served to maintain the idea that using these
techniques is legitimate, despite the disastrous consequences they have
for society and the environment. Edward Bernays,
the so-called ‘father of public relations’ goes much further than
Bernard London ever did. His work contains the real basis of the idea
that consumerism is a social fait accompli that now defines how we think about ourselves,
what we do and our interactions with others. Woodrow Wilson asked the
Austrian to help him encourage the American people to join the war
effort in 1917, and in his 1928 book Propaganda, he explains how,
while working for Lucky Strike, he managed to persuade women to start
smoking.

Previously seen as primarily a men’s
activity, Bernays succeeded in convincing American women to take up the
habit by giving leading suffragettes free cigarettes and encouraging
them to brandish them as ‘torches of freedom.’ This inversion of social
meaning by attaching an artificial political meaning to an ordinary
consumer product foreshadowed Noam Chomsky’s idea of ‘manufacturing
consent.’

“Our enormously productive economy …
demands that we make consumption our way of life, that we convert the
buying and use of goods into rituals, that we seek our spiritual
satisfaction, our ego satisfaction, in consumption … we need
things consumed, burned up, replaced and discarded at an
ever-accelerating rate.”

Permanent consumption is seen as proof of a
happy, fulfilled life and leaves individuals with only one objective,
accumulating and replacing material goods, with design contributing to
making them more or less attractive. The mobile phone, the car, and the
watch are the three examples par excellence of this vision. Linked
with Bernays’ idea that we take pleasure in destroying our obsolete
possessions, this world view also has echoes of Freud’s ‘death drive’,
something also found in the writing of John Maynard Keynes by Gilles Dostaller and Bernard Maris. Except
that at the time, the two economists were hoping to find an explanation
for what had gone wrong with the system that led to it to destroying
itself. But there is no reason to make the distinction: bankers and
businessmen are consumers like the rest of us, but on a different scale.
On their scale, the talk is of systemic crises rather than planned
obsolescence. And these crises, we’re told, are equally vital in keeping
the whole system turning.

Thursday, July 19, 2012

The Russian government has finally caught on that its political
opposition is being financed by the US taxpayer-funded National
Endowment for Democracy and other CIA/State Department fronts in an
attempt to subvert the Russian government and install an American puppet
state in the geographically largest country on earth, the one country
with a nuclear arsenal sufficient to deter Washington’s aggression.

Just as earlier this year Egypt expelled hundreds of people
associated with foreign-funded “non-governmental organizations” (NGOs)
for “instilling dissent and meddling in domestic policies,” the Russian
Duma (parliament) has just passed a law that Putin is expected to sign
that requires political organizations that receive foreign funding to
register as foreign agents. The law is based on the US law requiring
the registration of foreign agents.

Much of the Russian political opposition consists of foreign-paid
agents, and once the law passes leading elements of the Russian
political opposition will have to sign in with the Russian Ministry of
Justice as foreign agents of Washington. The Itar-Tass News Agency
reported on July 3 that there are about 1,000 organizations in Russia
that are funded from abroad and engaged in political activity. Try to
imagine the outcry if the Russians were funding 1,000 organizations in
the US engaged in an effort to turn America into a Russian puppet state.
(In the US the Russians would find a lot of competition from Israel.)

The Washington-funded Russian political opposition masquerades behind
“human rights” and says it works to “open Russia.” What the disloyal
and treasonous Washington-funded Russian “political opposition” means by
“open Russia” is to open Russia for brainwashing by Western propaganda,
to open Russia to economic plunder by the West, and to open Russia to
having its domestic and foreign policies determined by Washington.

“Non-governmental organizations” are very governmental. They have
played pivotal roles in both financing and running the various “color
revolutions” that have established American puppet states in former
constituent parts of the Soviet Empire. NGOs have been called “coup
d’etat machines,” and they have served Washington well in this role.
They are currently working in Venezuela against Chavez.

Of course, Washington is infuriated that its plans for achieving
hegemony over a country too dangerous to attack militarily have been
derailed by Russia’s awakening, after two decades, to the threat of
being politically subverted by Washington-financed NGOs. Washington
requires foreign-funded organizations to register as foreign agents
(unless they are Israeli funded).

However, this fact doesn’t stop
Washington from denouncing the new Russian law as “anti-democratic,”
“police state,” blah-blah. Caught with its hand in subversion,
Washington calls Putin names. The pity is that most of the brainwashed
West will fall for Washington’s lies, and we will hear more about
“gangster state Russia.”

China is also in Washington’s crosshairs. China’s rapid rise as an
economic power is perceived in Washington as a dire threat. China must
be contained. Obama’s US Trade Representative has been secretly
negotiating for the last 2 or 3 years a Trans Pacific Partnership, whose
purpose is to derail China’s natural economic leadership in its own
sphere of influence and replace it with Washington’s leadership.

Washington is also pushing to form new military alliances in Asia and
to establish new military bases in the Philippines, S. Korea, Thailand,
Vietnam, Australia, New Zealand, and elsewhere.
Washington quickly inserted itself into disputes between China and
Vietnam and China and the Philippines. Washington aligned with its
former Vietnamese enemy in Vietnam’s dispute with China over the
resource rich Paracel and Spratly islands and with the Philippines in
its dispute with China over the resource rich Scarborough Shoal.

Thus, like England’s interference in the dispute between Poland and
National Socialist Germany over the return to Germany of German
territories that were given to Poland as World War I booty, Washington
sets the stage for war.

China has been cooperative with Washington, because the offshoring of
the US economy to China was an important component in China’s
unprecedented high rate of economic development. American capitalists
got their short-run profits, and China got the capital and technology to
build an economy that in another 2 or 3 years will have surpassed the
sinking US economy. Jobs offshoring, mistaken for free trade by free
market economists, has built China and destroyed America.

Washington’s growing interference in Chinese affairs has convinced
China’s government that military countermeasures are required to
neutralize Washington’s announced intentions to build its military
presence in China’s sphere of influence. Washington’s view is that only
Washington, no one else, has a sphere of influence, and Washington’s
sphere of influence is the entire world.
On July 14 China’s official news agency, Xinhua, said that Washington
was interfering in Chinese affairs and making China’s disputes with
Vietnam and the Philippines impossible to resolve.

It looks as if an over-confident US government is determined to have a
three-front war: Syria, Lebanon, and Iran in the Middle East, China in
the Far East, and Russia in Europe. This would appear to be an ambitious
agenda for a government whose military was unable to occupy Iraq after
nine years or to defeat the lightly-armed Taliban after eleven years,
and whose economy and those of its NATO puppets are in trouble and
decline with corresponding rising internal unrest and loss of confidence
in political leadership.

The US Food and Drug Administration announced Tuesday that the
chemical bisphenol-A (BPA) is now officially banned from the
manufacturing of baby bottles and sippy cups -- a move that researchers
say still falls short of sufficient regulation. Environmental groups say
more should be done to ban BPA from all consumer products including
infant formula and food and beverage packaging, which are not included
under the new rules.The F.D.A. said
that its decision was a response to a request by the American Chemistry
Council, the chemical industry’s main trade association, that rules
allowing BPA in those products be phased out, in part to boost "consumer
confidence."

The Environmental Working Group says
the move is purely cosmetic, as most companies have already stopped
using BPA for baby bottles and sippy cups due to public pressure.
Allowing BPA to go unchallenged in products it is actually still used in
is a blow to the anti-BPA fight.

“Once again, the FDA has come so late to the party that the public and the marketplace have already left,” said
Jason Rano, Director of Government Affairs for EWG. “If the agency
truly wants to prevent people from being exposed to this toxic chemical
associated with a variety of serious and chronic conditions it should
ban its use in cans of infant formula, food and beverages."

BPA is a synthetic estrogen that scientists say can disrupt the
hormone system, interfere with development of the reproductive and
nervous systems in babies and young children, and is likely
carcinogenic.

In the US, BPA is an almost ubiquitous substance found in most food
packaging, water bottles, and dental sealants. Roughly 90 percent of
Americans have traces of BPA in their urine, due to exposure. Traces have also been found in breast milk, the blood of pregnant women and umbilical cord blood.

“This is only a baby step in the fight to eradicate BPA. To truly
protect the public, FDA needs to ban BPA from all food packaging. This
half-hearted action—taken only after consumers shifted away from BPA in
children’s products — is inadequate. FDA continues to dodge the bigger
questions of BPA’s safety,” said Dr. Sarah Janssen, senior scientist in the public health program at Natural Resources Defense Council.

For three months, McClatchy requested the most recent tax returns
from all 535 members of Congress, but only 13 Democrats and 3
Republicans shared their detailed tax information. The rest either
refused to share their tax returns or ignored McClatchy’s request.

Members of Congress are required to file financial disclosure reports
that list their major sources of earned and unearned income. However,
the disclosure reports do not contain the same detail of information
found in tax returns, omitting financial data such as spousal income.

Romney has repeatedly insisted that he would not release more
than his 2010 and 2011 tax returns, even though his own father set a
standard of releasing 12 years of returns.

“In the political environment that exists today, the opposition
research of the Obama campaign is looking for anything they can use to
distract from the failure of the president to reignite our economy,”
Romney told the conservative National Review Online.

“I’m simply not enthusiastic about giving them hundreds or thousands
of more pages to pick through, distort and lie about,” he added.

Senate Republicans blocked the Disclose Act Monday night,
effectively killing a bid for campaign donor transparency in the
post-Citizens United world. The Disclose Act, which was defeated 51-44,
would have required independent groups to release the names of campaign
donors who give more than $10,000 for political ads and other campaign
tactics.

The
Act was drafted in response to the 2010 Citizens United ruling, which
allows limitless corporate donations to be given to outside political
campaigners, known as super PACs, in secret.

"The DISCLOSE Act would help the American people understand who is
behind the political messages we’re bombarded with every day,” said
Michael Keegan, President of People For the American Way. “Apparently,
GOP senators would rather keep the public in the dark about who is
bankrolling their campaigns. What do they have to hide?"

"Today, the Senate had a chance to protect the American people’s
right to know who is trying to sway their vote. Unfortunately, Senate
Republicans chose to protect the anonymity of the wealthy few at the
expense of the American public."

The Republican filibuster of the bill was led by Senate Minority Leader Mitch McConnell (R-Ky.) one of several republican senators
who once supported campaign finance disclosure but have recently
favored increased secrecy in Washington, including Sen. John McCain
(R-Ariz.), Sens. Olympia Snowe (R-Maine), Susan Collins (R-Maine),
Richard Lugar (R-Ind.), and Scott Brown (R-Mass.).

"These same politicians were for the disclosure measure for years,
until there was a chance it might actually pass. Now they are
filibustering it," said Michael Waldman, at the Brennan Center at NYU.

As a result, corporations will continue to spend large sums of money
to influence elections and subsequent policy while remaining anonymous.

* * *

Question: On Cloture on the Motion to Proceed (Motion to Invoke Cloture on the Motion to Proceed to S.3369 )

A bill to amend the
Federal Election Campaign Act of 1971 to provide for additional
disclosure requirements for corporations, labor organizations, Super
PACs and other entities, and for other purposes.

Pressure on Mitt Romney to release his tax returns has reached a
critical point as a stampede of Republican voices are now joining the
call.

Screengrab from Mitt & Ann Romney's 2010 Return

So far Romney has released just his 2010 return and an estimate of his 2011 return.

As the negative attention over the issue grows, Pema Leva wonders at TPM, "if it’s worth the bad press to keep the tax returns private, they must contain something worse."

While Romney's submitted returns show "an effective 2010 tax rate of 13.9 percent," previous years may be even more damning, making the bad press worth it. Kevin Drum writes that "there are probably multiple years in which Romney paid no taxes at all."

Steve Benen speculates
on other reasons for Romney taking the heat rather than releasing the
returns, suggesting Romney "may have had to pay fines" for skirting tax
laws or "may have additional offshore investments."

When asked by the conservative National Review about not releasing his returns, Romney stated:

My tax returns that have already been released number into the
hundreds of pages. And we will be releasing tax returns for the most
current year as soon as those are prepared. They will also number in the
hundreds of pages. In the political environment that exists today, the
opposition research of the Obama campaign is looking for anything they
can use to distract from the failure of the president to reignite our
economy. And I’m simply not enthusiastic about giving them hundreds or
thousands of more pages to pick through, distort, and lie about.

Calls for Romney to release his tax returns are now also coming from fellow Republicans.

Asked by reporters on Tuesday whether Romney should release more of his return, Texas Gov. Rick Perry said,
“I’m a big believer that no matter who you are, or what office you’re
running for, you should be as transparent as you can be with your tax
returns and other aspects of your life so that people have the
appropriate ability to judge your background and what have you."

The National Journal has a list
of 14 prominent Republicans, including Perry, who also say Romney
should release his returns. Their list includes Sen. Richard Lugar of
Indiana, who said, "I have no idea on why he has restricted the number
to this point."

The National Review Online also published an editorial Tuesday urging Romney to release his returns.

A bipartisan group of House lawmakers introduced a bill this week designed to create enhanced legal protections for valid medical marijuana patients prosecuted due to conflicting state and federal laws regarding the legality of the substance.

Under theTruth In Trials Act, sponsored by California Democratic Rep. Sam Farr and co-sponsored by other representatives such as Barney Frank (D-Mass.) and Ron Paul (R-Texas), state-licensed medical marijuana users would be given the right to provide an "affirmative defense" in the case of a federal prosecution. This effectively allows them to prove that their actions, while illegal at the federal level, were in fact protected under state law.

"Any person facing prosecution or a proceeding for any marijuana-related offense under any federal law shall have the right to introduce evidence demonstrating that the marijuana-related activities for which the person stands accused were performed in compliance with state law regarding the medical use of marijuana, or that the property which is subject to a proceeding was possessed in compliance with state law regarding the medical use of marijuana," the bill reads.

The legislation also lays out specific language stating that cannabis plants grown legally under state law may not be seized. Under the legislation, marijuana and other property confiscated in the process of a prosecution must also be maintained -- not destroyed -- and returned to the defendant if they are able to prove it was for a use accepted by the state.

The latest version of the Truth In Trials Act comes as federal crackdowns on dispensaries in medical marijuana states continue to surge. Last week, federal officials targeted one of the nation's largest pot shops. The Associated Press reported:

U.S. Attorney Melinda Haag has threatened to seize the Oakland property where Harborside Health Center has operated since 2006, as well as its sister shop in San Jose, executive director and co-founder Steve DeAngelo said Wednesday. His employees found court papers announcing asset forfeiture proceedings against Harborside's landlords taped to the doors at the two locations on Tuesday.

(a) Any person facing prosecution or a proceeding for any marijuana-related offense under any Federal law shall have the right to introduce evidence demonstrating that the marijuana-related activities for which the person stands accused were performed in compliance with State law regarding the medical use of marijuana, or that the property which is subject to a proceeding was possessed in compliance with State law regarding the medical use of marijuana.

`(b)(1) It is an affirmative defense to a prosecution or proceeding under any Federal law for marijuana-related activities, which the proponent must establish by a preponderance of the evidence, that those activities comply with State law regarding the medical use of marijuana.

`(2) In a prosecution or a proceeding for a marijuana-related offense under any Federal criminal law, should a finder of fact determine, based on State law regarding the medical use of marijuana, that a defendant's marijuana-related activity was performed primarily, but not exclusively, for medical purposes, the defendant may be found guilty of an offense only corresponding to the amount of marijuana determined to be for nonmedical purposes.

`(c) Any property seized in connection with a prosecution or proceeding to which this section applies, with respect to which a person successfully makes a defense under this section, shall be returned to the owner not later than 10 days after the court finds the defense is valid, minus such material necessarily destroyed for testing purposes.

`(d) Any marijuana seized under any Federal law shall be retained and not destroyed pending resolution of any forfeiture claim, if not later than 30 days after seizure the owner of the property notifies the Attorney General, or a duly authorized agent of the Attorney General, that a person with an ownership interest in the property is asserting an affirmative defense for the medical use of marijuana.

`(e) No plant may be seized under any Federal law otherwise permitting such seizure if the plant is being grown or stored pursuant to a recommendation by a physician or an order of a State or municipal agency in accordance with State law regarding the medical use of marijuana.

`(f) In this section, the term State includes the District of Columbia, Puerto Rico, and any other territory or possession of the United States.'

Tuesday, July 17, 2012

According to news reports, UK banks fixed the London interbank
borrowing rate (Libor) with the complicity of the Bank of England (UK
central bank) at a low rate in order to obtain a cheap borrowing cost.
The way this scandal is playing out is that the banks benefitted from
borrowing at these low rates. Whereas this is true, it also strikes us
as simplistic and as a diversion from the deeper, darker scandal.Banks
are not the only beneficiaries of lower Libor rates. Debtors (and
investors) whose floating or variable rate loans are pegged in some way
to Libor also benefit. One could argue that by fixing the rate low, the
banks were cheating themselves out of interest income, because the
effect of the low Libor rate is to lower the interest rate on customer
loans, such as variable rate mortgages that banks possess in their
portfolios. But the banks did not fix the Libor rate with their
customers in mind. Instead, the fixed Libor rate enabled them to improve
their balance sheets, as well as help to perpetuate the regime of low
interest rates. The last thing the banks want is a rise in interest
rates that would drive down the values of their holdings and reveal
large losses masked by rigged interest rates.

Indicative of greater deceit and a larger scandal than simply
borrowing from one another at lower rates, banks gained far more from
the rise in the prices, or higher evaluations of floating rate financial
instruments (such as CDOs), that resulted from lower Libor rates. As
prices of debt instruments all tend to move in the same direction, and
in the opposite direction from interest rates (low interest rates mean
high bond prices, and vice versa), the effect of lower Libor rates is to
prop up the prices of bonds, asset-backed financial instruments, and
other “securities.” The end result is that the banks’ balance sheets
look healthier than they really are.

On the losing side of the scandal are purchasers of interest rate
swaps, savers who receive less interest on their accounts, and
ultimately all bond holders when the bond bubble pops and prices collapse.

We think we can conclude that Libor rates were manipulated lower as a
means to bolster the prices of bonds and asset-backed securities. In
the UK, as in the US, the interest rate on government bonds is less than
the rate of inflation. The UK inflation rate is about 2.8%, and the
interest rate on 20-year government bonds is 2.5%. Also, in the UK, as
in the US, the government debt to GDP ratio is rising. Currently the
ratio in the UK is about double its average during the 1980-2011 period.

The question is, why do investors purchase long term bonds, which pay
less than the rate of inflation, from governments whose debt is rising
as a share of GDP? One might think that investors would understand that
they are losing money and sell the bonds, thus lowering their price and
raising the interest rate.

Why isn’t this happening?

Despite the negative interest rate, investors have been making
capital gains from their Treasury bond holdings, because the prices were
rising as interest rates were pushed lower.
What was pushing the interest rates lower?

The answer is even clearer now. Wall Street has been selling huge
amounts of interest rate swaps, essentially a way of shorting interest
rates and driving them down. Thus, causing bond prices to rise.

Secondly, fixing Libor at lower rates has the same effect. Lower UK interest rates on government bonds drive up their prices.

In other words, we would argue that the bailed-out banks in the US
and UK are returning the favor that they received from the bailouts and
from the Fed and Bank of England’s low rate policy by rigging government
bond prices, thus propping up a government bond market that would
otherwise, one would think, be driven down by the abundance of new debt
and monetization of this debt, or some part of it.

How long can the government bond bubble be sustained? How negative can interest rates be driven?

Can a declining economy offset the impact on inflation of debt
creation and its monetization, with the result that inflation falls to
zero, thus making the low interest rates on government bonds positive?

According to his public statements, zero inflation is not the goal of
the Federal Reserve chairman. He believes that some inflation is a
spur to economic growth, and he has said that his target is 2%
inflation. At current bond prices, that means a continuation of
negative interest rates.

The latest news completes the picture of banks and central banks
manipulating interest rates in order to prop up the prices of bonds and
other debt instruments. We have learned that the Fed has been aware of
Libor manipulation (and thus apparently supportive of it) since 2008.
Thus, the circle of complicity is closed. The motives of the Fed, Bank
of England, US and UK banks are aligned, their policies mutually
reinforcing and beneficial. The Libor fixing is another indication of
this collusion.

Unless bond prices can continue to rise as new debt is issued, the
era of rigged bond prices might be drawing to an end. It would seem to
be only a matter of time before the bond bubble bursts.

We’re at the edge of the cliff of deficit disaster! National
security spending is being, or will soon be, slashed to the bone!
Obamacare will sink the ship of state!

Each of these claims has grabbed national attention in a big way,
sucking up years’ worth of precious airtime. That’s a serious bummer,
since each of them is a spending myth of the first order. Let’s pop
them, one by one, and move on to the truly urgent business of a nation
that is indeed on the edge.

Spending Myth 1:Today’s deficits have taken us to a historically unprecedented, economically catastrophic place.

This myth has had the effect of binding the hands of elected
officials and policymakers at every level of government. It has also
emboldened those who claim that we must cut government spending as
quickly, as radically, as deeply as possible.

In fact, we’ve been here before. In 2009, the federal budget deficit
was a whopping 10.1% of the American economy and back in 1943, in the
midst of World War II, it was three times that — 30.3%. This fiscal year
the deficit will total around 7.6%. Yes, that is big. But in the Congressional Budget Office’s grimmest projections, that figure will fall to 6.3% next year, and 5.8% in fiscal 2014. In 1983, under President Reagan, the deficit hit 6%
of the economy, and by 1998, that had turned into a surplus. So, while
projected deficits remain large, they’re neither historically
unprecedented, nor insurmountable.

More important still, the size of the deficit is no sign that
lawmakers should make immediate deep cuts in spending. In fact, history
tells us that such reductions are guaranteed to harm, if not cripple, an
economy still teetering at the edge of recession.

A number of leading economists are now busy explaining
why the deficit this year actually ought to be a lot larger, not
smaller; why there should be more government spending, including aid to
state and local governments, which would create new jobs and prevent
layoffs in areas like education and law enforcement. Such efforts,
working in tandem with slow but positive job growth in the private
sector, might indeed mean genuine recovery. Government budget cuts, on
the other hand, offset private-sector gains with the huge and depressing effect of public-sector layoffs, and have damaging ripple effects on the rest of the economy as well.

When the economy is healthier, a host of promising options are at
hand for lawmakers who want to narrow the gap between spending and tax
revenue. For example, loopholes and deductions in the tax code that hand
enormous subsidies to wealthy Americans and corporations will cost the
Treasury around $1.3 trillion
in lost revenue this year alone — more, that is, than the entire budget
deficit. Closing some of them would make great strides toward
significant deficit reductions.

Alarmingly, the deficit-reduction fever that’s resulted from this
first spending myth has led many Americans to throw their support behind
de-investment in domestic priorities like education, research, and infrastructure — cuts that threaten to undo generations of progress. This is in part the result of myth number two.

Spending Myth 2:Military and other national
security spending have already taken their lumps and future
budget-cutting efforts will have to take aim at domestic programs instead.

The very idea that military spending has already been deeply cut
in service to deficit reduction is not only false, but in the realm of
fantasy. The real story: despite headlines about “slashed” Pentagon
spending and “doomsday” plans for more, no actual cuts to the defense
budget have yet taken place. In fact, since 2001, to quote former
Defense Secretary Robert M. Gates, defense spending has grown like a
“gusher.” The Department of Defense base budget nearly doubled
in the space of a decade. Now, the Pentagon is likely to face an
exceedingly modest 2.5% budget cut in fiscal 2013, “paring” its budget
down to a mere $525 billion — with possible additional cuts shaving off another $55 billion next year if Congress allows the Budget Control Act, a.k.a. “sequestration,” to take effect.

But don’t hold your breath waiting for that to happen. It’s likely
that lawmakers will, at the last moment, come to an agreement to cancel
those extra cuts. In other words, the notion that our military, which
has been experiencing financial boom times even in tough times, has felt
significant deficit-slashing pain — or has even been cut at all — is
the Pentagon equivalent of a unicorn.

What this does mean, however, is that lawmakers heading down the budget-cutting path can find plenty of savings in the enormous
defense and national security budgets. Moreover, cuts there would be
less harmful to the economy than reductions in domestic spending.

A group of military budget experts, for example, found
that cutting many costly and obsolete weapons programs could save
billions of dollars each year, and investing that money in domestic
priorities like education and health care would spur the economy. That’s
because those sectors create more jobs per dollar than military programs do. And that leads us to myth three.

False claims about the higher cost of government health programs have
led many people to demand that health-care solutions come from the
private sector. Advocates of this have been much aided by the complexity
of sorting out health costs, which has provided the necessary smoke and
mirrors to camouflage this whopping lie.

Health spending is indeed growing faster
than any other part of the federal budget. It’s gone from a measly 7%
in 1976 to nearly a quarter today — and that’s truly a cause for
concern. But health care costs, public and private, have been on the
rise across the developed world for decades. And cost growth in
government programs like Medicare has actually been slower
than in private health insurance. That’s because the federal government
has important advantages over private insurance companies when it comes
to health care. For example, as a huge player in the health-care
market, the federal government has been successful at negotiating lower
prices than small private insurers can. And that helps us de-bunk myth
number four.

Spending Myth 4:The Affordable Care Act — Obamacare — will bankrupt the federal government while levying the biggest tax in U.S. history.

Wrong again. According to the Congressional Budget Office, this health-reform legislation will reduce budget deficits by $119 billion between now and 2019. And only around 1% of American households will end up paying a penalty for lacking health insurance.

While the Affordable Care Act is hardly a panacea for the many
problems in U.S. health care, it does at least start to address the
pressing issue of rising costs — and it incorporates some of the best
wisdom on how to do so. Health-policy experts have explored phasing out
the fee-for-service payment system — in which doctors are paid for each
test and procedure they perform — in favor of something akin to
pay-for-performance. This transition would reward medical professionals
for delivering more effective, coordinated, and efficient care — and
save a lot of money by reducing waste.

The Affordable Care Act begins implementing
such changes in the Medicare program, and it explores other important
cost-containment measures. In other words, it lays the groundwork for
potentially far deeper budgetary savings down the road.

Having cleared the landscape of four stubborn spending myths, it
should be easier to see straight to the stuff that really matters.
Financial hardship facing millions of Americans ought to be our top
concern. Between 2007 and 2010, the median family lost nearly 40%
of its net worth. Neither steep deficits, nor disagreement over
military spending and health reform should eclipse this as our most
pressing challenge.

If lawmakers skipped the myth-making and began putting America’s
resources into a series of domestic investments that would spur the
economy now, their acts would yield dividends for years to come. That
means pushing education and job training, plus a host of job-creation
measures, to the top of the priority list, and setting aside initiatives
based on fear and fantasy.

The people who have been the winners in the massive upward
redistribution of income over the last three decades have a happy story
that they like to tell themselves and the rest of us: technology did it.
The reason why this is a happy story is that technology develops to a
large extent beyond our control.

None of us can decide exactly what direction innovations in
computers, automation, or medicine will take. Scientists and engineers
in these areas follow their leads and innovate where they can. If the
outcome of these innovations is an economy that is more unequal, that
may be unfortunate, but you can’t get mad at the technology. This is why
the beneficiaries of growing inequality are always happy to tell us
that the problem is technology.

There is another story that can be told. In this story the upward
redistribution of income was a conscious policy by those in power. This
story points to a number of different policies that had the effect of
redistributing income upward. For example, exposing manufacturing
workers to direct competition with low-paid workers in the developing
world, while protecting highly educated professionals (e.g. doctors and
lawyers), would be expected to lower the wages of both manufacturing
workers and the large number of workers who will compete for jobs with
displaced manufacturing workers.

Central banks that target low inflation even at the cost of higher
unemployment will also increase inequality. When a central bank like the
Fed raises interest rates to slow the economy and reduce inflationary
pressures, it is factory workers and retail clerks who lose their jobs,
not doctors and lawyers. Even an economist can figure out that this will depress the wages of the former to benefit the latter.

And when a government adopts a one-sided approach to enforcing labor
laws, so that courts intervene to benefit management and weaken unions,
it will reduce workers’ bargaining power. This will mean lower pay for
ordinary workers and higher corporate profits and pay for those at the
top.

These and other policy changes over the last three decades can
explain the massive upward redistribution that we have seen over this
period. In this story there is no happy coincidence about the upward
redistribution of income. It was done by human hands with the finger
prints of the 1 percent everywhere.

But people involved in policy debates often have difficulty seeing
these fingerprints. That is the context in which we have to understand
the report that
the OECD released on inequality at the end of last year. While this
volume contained much interesting data and useful analysis, the main
villain in its inequality story was technology.

This led to the happy conclusion that those calling the shots were
not responsible. As decent caring human beings they had ideas about how
to redress the harm that technology had caused, but this was only
because they were good people. There was no sense of undoing the damage
brought about by deliberate policy.

On closer examination it turns out that the OECD technology story is wrong. Ananalysis by
my colleague at the Center for Economic and Policy Research, David
Rosnick, found that they appeared to have made a mistake in their
analysis substituting a coefficient on a cyclical technology variable
for the coefficient of the trend technology variable. Essentially, their
results (and ours) found that spending on technology may influence
inequality over the course of a business cycle, but that the increase in
spending on technology over the last three decades had no impact on
inequality over this period.

The OECD analysis did find that lower unionization rates and weaker
labor protections contributed to inequality; although this rise was
offset by the impact of an increasingly educated workforce. On net,
their analysis explained none of the rise in inequality they identified.

Our analysis found that the growth of the financial sector could
explain much of the rise of inequality over this period. The rise in the
financial sector share of compensation was strongly associated with a
rise in inequality. This is not surprising. The huge paychecks of the
Wall Street crew have to come from somewhere and our analysis indicates
that it came from those below the 90th percentile in the income
distribution. The growth of the financial sector is in turn a story of
too-big-to-fail insurance and having the government look the other way
in the face of financial sector corruption, as we see most recently with
the LIBOR scandal.

In short, the OECD struck out in trying to produce a volume that
supported the benign technology caused inequality story. When done
correctly their analysis does not support this conclusion. Our
modification of their analysis fingers the financial industry as a major
villain in the inequality story.

If we are serious about reducing inequality, reining in the financial sector must be a big part of the plan. And, a tax on financial speculation would be a great place to start.

Last fall, I argued that the violent reaction to Occupy
and other protests around the world had to do with the 1%ers' fear of
the rank and file exposing massive fraud if they ever managed get their
hands on the books. At that time, I had no evidence of this motivation
beyond the fact that financial system reform and increased transparency
were at the top of many protesters' list of demands.

But this week presents a sick-making trove of new data that
abundantly fills in this hypothesis and confirms this picture. The
notion that the entire global financial system is riddled with systemic
fraud – and that key players in the gatekeeper roles, both in finance
and in government, including regulatory bodies, know it and choose to
quietly sustain this reality – is one that would have only recently
seemed like the frenzied hypothesis of tinhat-wearers, but this week's
headlines make such a conclusion, sadly, inevitable.

In the New York Times business section, we read that the HSBC banking group is being fined up to $1bn, for not preventing money-laundering (a highly profitable activity not to prevent) between 2004 and 2010 – a six years' long "oops". In another article that day,
Republican Senator Charles Grassley says of the financial group
Peregrine capital: "This is a company that is on top of things." The
article goes onto explain that at Peregrine Financial, "regulators
discovered about $215m in customer money was missing." Its founder now
faces criminal charges. Later, the article mentions that this revelation
comes a few months after MF Global "lost" more than $1bn in clients'
money.

What is weird is how these reports so consistently describe the
activity that led to all this vanishing cash as simple bumbling:
"regulators missed the red flag for years." They note that a Peregrine
client alerted the firm's primary regulator in 2004 and another raised
issues with the regulator five years later – yet "signs of trouble
seemingly missed for years", muses the Times headline.

A page later, "Wells Fargo will Settle Mortgage Bias Charges"
as that bank agrees to pay $175m in fines resulting from its having –
again, very lucratively – charged African-American and Hispanic
mortgagees costlier rates on their subprime mortgages than their
counterparts who were white and had the same credit scores. Remember,
this was a time when "Wall Street firms developed a huge demand for
subprime loans that they purchased and bundled into securities for
investors, creating financial incentives for lenders to make such
loans." So, Wells Fargo was profiting from overcharging minority clients
and profiting from products based on the higher-than-average bad loan
rate expected. The piece discreetly ends mentioning that a Bank of
America lawsuit of $335m and a Sun Trust mortgage settlement of $21m for
having engaged is similar kinds of discrimination.

Are all these examples of oversight failure and banking fraud just big ol' mistakes? Are the regulators simply distracted?

The top headline of the day's news sums up why it is not that simple: "Geithner Tried to Curb Bank's Rate Rigging in 2008". The story reports that when Timothy Geithner,
at the time he ran the Federal Reserve Bank of New York, learned of
"problems" with how interest rates were fixed in London, the financial
center at the heart of the LiborBarclays
scandal. He let "top British authorities" know of the issues and wrote
an email to his counterparts suggesting reforms. Were his actions
ethical, or prudent? A possible interpretation of Geithner's action is
that he was "covering his ass", without serious expectation of effecting
reform of what he knew to be systemic abuse.

Last month, the bank agreed to pay $450m to
US and UK authorities for manipulating the Libor and other key
benchmarks, upon which great swaths of the economy depended. This
manipulation is alleged in numerous lawsuits to have defrauded thousands
of bank clients. So Geithner's "warnings came too late, and his efforts
did not stop the illegal activity".

And then what happened? Did Geithner, presumably frustrated that his
warnings had gone unheeded, call a press conference? No. He stayed
silent, as a practice that now looks as if several major banks also
perpetrated, continued.

And then what happened? Tim Geithner became Treasury Secretary. At which point, he still did nothing.

It is very hard, looking at the elaborate edifices of fraud that are
emerging across the financial system, to ignore the possibility that
this kind of silence – "the willingness to not rock the boat" – is
simply rewarded by promotion to ever higher positions, ever greater
authority. If you learn that rate-rigging and regulatory failures are
systemic, but stay quiet, well, perhaps you have shown that you are
genuinely reliable and deserve membership of the club.

Whatever motivated Geithner's silence, or that of the "government
official" in the emails to Barclays, this much is obvious: the
mainstream media need to drop their narratives of "Gosh, another
oversight". The financial sector's corruption must be recognized as systemic.

Meanwhile, Britain is sleepwalking in a march toward total email
surveillance, even as the US brings forward new proposals to punish
whistleblowers by extending the Espionage Act. In an electronic world,
evidence of these crimes lasts forever – if people get their hands on
the books. In the Libor case, notably, a major crime has not been
greeted by much demand at the top for criminal prosecutions. That
asymmetry is one of the insurance policies of power.